A brand-new office and research space for aviation companies is slowly appearing on the edges of the Atlantic City Airport. It is a $26 million bet for Atlantic County and its taxpayers.
The county has borrowed $7.5 million in debt for the project. The Casino Reinvestment Development Authority has loaned $2.7 million to the project. And the Atlantic County Improvement Authority has issued $15.5 million in project notes, to be repaid using the lease income from the new building.
The project, which was on the drawing board for almost a decade, has struggled amid higher-than-budgeted design costs and various management changes. If it fails to draw paying tenants, taxpayers will be on the hook for the county and the improvement authority’s borrowing.
This is made clear in a cooperation agreement about the new building, Building #3, that was filed in September, before the project was rebranded as the National Aviation Research & Technology Park.
“The ACIA anticipates that Building #3 Income may not be sufficient to fully pay ACIA Debt Service as and when due,” the agreement says. “In the event the Building #3 Income is insufficient to pay in full the ACIA Debt Service as and when due, the County shall pay such shortfall from taxes raised through its taxing power and/or from funds otherwise available to the County.”
That language was not in the offering document to sell the debt, which already carried the county’s guaranty. “It’s a protection for the buyers of the bonds,” said John Lamey, the ACIA’s executive director. While the ACIA’s debt is structured as a project finance note, the authority is allowed to only pay down interest, Lamey explained. The ACIA expects to reissue notes next year, too, he said, adding that bond counsel have told the Authority similar entities have rolled over notes for up to 10 years.
The county’s bond counsel, McManimon, Scotland & Baumann, did not respond to a request for comment.
The new construction costs were a necessary part of the economic development project, said the county’s Chief of Staff, Howard Kyle. “We needed new construction to do it,” he said. “When we planned the building, the economy of the area was so bad,” he said, noting the area’s high unemployment and foreclosure rate. “We realized that there was a chance that when you have new construction, the cost of new construction may not be supported by what you can get as a market rent in this area,” he said. “This is not a real estate project. A real estate project would never have happened. This was an economic development project to start getting something going and hopefully start getting jobs coming into the area,” he added.
Kyle said he looks at the cost of the project as the investment needed to fix something that was broken. If a bridge is broken, the county fixes it, he said. It is the same with a broken economy. The county has to pay to fix it.
No tenants have yet been signed beyond the FAA, which receives the space in return for leasing the land. But the recent state designation of the area as a Growth Zone and an agreement with the New Jersey Innovation Institute to manage the project represent major advances, Kyle said. And the county and the ACIA are working hard to find tenants for the space.
“Little by little, incrementally, we’re doing this,” he said. “To get to where we are took three- to five-years worth of work to get a product in place. Prior to that time, you did not have anything to sell apart from some good sounding ideas. Now we have something to sell and build on.”
Lamey said the state support was something new for the project and it will be a big help in drawing tenants. “The state has really come out and made it known that they’re supporting the project,” he said. “I think that’s really key for us. A lot of times when companies relocate, they want to know what support there is from the state.”